When you are thirty, you still feel young and invincible. The truth is that you are already halfway to retirement. Do you want to become wealthy? Maybe you should start sowing your wild oats and be more considerate about spending your money with these financial habits.

Stick to a Budget

Most 20 year olds already thought of working with a budget. Maybe you downloaded an app, installed some software or read about budgettering somewhere on the internet. Past 30 it is about time you know what you are spending.

An important aspect of budgeting is to know your outgoing cash flows, so you can make the right decisions in your money management. Remember that a couple of euro’s here or there can make a huge difference in the long run. Of course, everybody loves to spend money shopping or on day trips. And you should, as long as these expenditures fit in your budget, and you stay focused on your savings goals.

Don’t Spend Your Entire Income

The richest people in the world didn’t make it by spending everything they earned. In fact, most of the self made millionaires actually live a frugal life. Interesting reading material is ‘The Millionaire Next Door‘ by Thomas J. Stanley. Research showed that most of the millionaires actually drive old cars and live in middel class homes. Even more striking is that people who drive big suv’s, wear designer clothes and live in a big mansion often have large debts. Their lifestyle can’t keep up with their income.

You could start living off 90% of your monthly income, which is absolutely possible if you stop spending money on thing you don’t really need. By doing so you already have 10% of your income you can invest. To avoid that you do spend your savings money, pay yourself first. Which means you transfer an amount automatically at the beginning of each month to a savings account. Preferably with another bank, so you don’t get tempted to spend it anyway. Periodically, you can invest your savings money in products which yield a higher return.

Saving regularly should become a habit. After a while you could even consider increasing the monthly savings. Ideally, you live from 60% to 80% of your income and invest the other 20% to 40%.

Set Some Realistic Financial Goals

What are your financial goals? To determine these goals, you should write them down. By writing your goals on paper, you start to think about how you can achieve them. If you don’t have goals or not well defined enough, how can you expect to reach them. For instance, if you want to make a trip to China, stop for a moment dreaming about it and make a plan. How much money will it cost? Go find out. How can I get that amount of money? Write down a plan.

The same is true for other financial goals, like investing in real estate for rental or growing a stock portfolio to a certain amount, or become financially independent.

Reduce Your Debts

A tough financial habit to learn, but oh so important. Many 30 year olds find it quite normal to have a lot of debt. For some it has almost become a way of living to have a mortgage, car loan, consumer credit (TV, computer, cell phone) or/and have outstanding amounts on their credit cards. They feel the need to work hard to service their debts. In fact, this is far from the truth. You should not be indebted your entire live. Most people don’t realise that the interest on all their debt is what makes them poor. Make an overview of all your outstanding debts and make sure you do not run up any more debts. This is really crucial.

Although there are a number of methods to reduce your debts, it’s probably a good idea to repay the debts with the highest interest. Usually these are consumer credits and credit card debts. Reducing your debt has a tremendous impact on your personal finance. By reducing your debts you get more leeway, which in turn provides you with more means to reduce debts even more, to start saving and to reach your financial goals.

Have an Emergency Fund

An emergency fund is absolutely necessary for healthy personal finance. Without a fund you’re more likely to spend your savings or use credit cards for unexpected expenses such as a flat tire, a broken washing machine or sudden hospitalisation. A first step towards a healthy personal finance is to install your emergency fund. A golden rule is to have a fund to cover your monthly expenses for at least 3 to 6 months. If you do not have the money right now, don’t worry. You can start building up your fund by starting with your monthly savings, until you have saved the full amount.

Save For Your Retirement

Really? A lot of 20 or 30 year old haven’t given much thought about their retirement. And why should you? Well, very simple. The sooner you start saving for your pension the more you can profit from the effect of compounding interest. Of all the financial habits, this one will probably make the most money.

Let’s have a look at an example, if you save €1.000 per year from 20 to 65 you will have saved €45.000. You might think that if you save €5.000 per year in the last 9 years before retiring, you have saved the same amount. Well, let us add some interest in the equation. If you would receive an average interest of 4% per year, the difference between the two saving plans is huge. In the first case (saving €1.000 for 45 years at 4%) you would have amassed €306.767. Saving €5.000 for 9 years at an interest rate of 4%, would give you a measly €55.031. So, what do you prefer?

Winnie Vincken

20 years of experience as strategic consultant, interim manager & entrepreneur in internet companies. Always interested to talk about innovation, disruptive models & investing with a passion for future developments.